Medtronic Inc. (MDT) and Edwards Lifesciences Corp. (EW), rival makers of innovative heart valves, are working with hospitals so the medical facilities can more easily afford the cost of their devices.
“In the U.S., the focus for hospitals switched pretty early in the year from ‘can I do great procedures’ to ‘I need to make money with this thing,’” Edwards’ Chief Executive Officer Michael Mussallem said at the JPMorgan Chase & Co. health-care conference in San Francisco.
The Edwards valve at a cost of $30,000 represents the greatest expense in an operation that goes for $42,000 at community hospitals. The device maker is working to minimize patient stay times to cut costs, Mussallem said. Medtronic, whose valve is awaiting U.S. approval, plans to package its device with other products, lowering its as-yet unannounced cost by boosting sales volume, Chief Executive Officer Omar Ishrak said in an interview.
Edwards, based in Irvine, California, started to focus on the economics of the procedure last year, Mussallem said. While the company expected its U.S. aortic valve sales to rise 70 percent in 2013, it saw an increase of 45 percent to 50 percent, he said, declining to give details until the company releases earnings next month.
The economics may have played a role in the shortfall. Hospitals are struggling as the health care system reforms and insurance payments fall, said Toby Cosgrove, chief executive officer of the Cleveland Clinic in Ohio, who is looking to trim $1.5 billion in the next five years. Picking products based on price and total cost to the system is critical, he said.
“The financial impact of these programs are huge,” said Paul Sorajja, director of the center for valve and structural heart disease at the Minneapolis Heart Institute. “They are money losers. It doesn’t take a rocket scientist to figure out you are vulnerable to losing a lot of money.”
Edwards has had the U.S. market for minimally invasive aortic valves to itself since November 2011. Medtronic’s product may get U.S. Food and Drug Administration clearance soon, after the agency in an unexpected move said it didn’t need a review from outside advisers to approve it.
Edwards gained 2.7 percent to $70.60 at the close in New York. Medtronic rose less than 1 percent to $59.41.
In both cases, the valves can be placed in the chest without cracking open the rib cage, an important advance in the field. At stake is a market that may reach $2.5 billion to $3 billion by 2019, Mussallem said.
Insurers, primarily Medicare, the U.S. health program for the elderly, paid $51,000 on average for all patients getting the surgery in 2012, according to government claims data. Teaching hospitals and academic medical centers get higher reimbursement than community hospitals, and payments for patients with additional ailments are also higher.
There are about 300,000 people worldwide with severe aortic stenosis, a narrowing of the valve between the left ventricle and the aorta. Blood can back up in the heart, leading to chest pain, breathlessness and weakness. One in three patients can’t tolerate the open-heart surgery that has been proven to improve quality and lengthen life. Half die within a year.
Medtronic’s product, called CoreValve, uses a smaller catheter to insert the device, will have a greater range of sizes for the valve itself and carries less risk of leakage around the device than the Edwards valve, a complication that boosts the risk of dying. It’s not clear, though, if those benefits can offset the Medtronic valve’s main drawback -- a greater need for expensive pacemakers to regulate the heart’s electrical rhythm.
Additionally, Medtronic hasn’t yet said what its device will cost, a key factor in the competitive arena. Edwards, which is awaiting approval of new models in the U.S. and Europe, plans to swap out the devices for the existing ones at the same price, Mussallem said. Edwards’ Sapien XT, expected to hit the U.S. this year, uses a smaller catheter and is easier to insert.
“There are distinct differences between the valves,” Sorajja said in a telephone interview. “We have been exclusively Sapien, but we see CoreValve is offering some unique advantages.”
The last time Medtronic introduced a product with the full force of its combined sales forces was the drug-coated heart stent Resolute, Michael Weinstein, a medical technology analyst at JPMorgan Chase & Co. in New York, said in a telephone interview. The company drove its share of an established market to 30 percent, from 11 percent a few years earlier, he said.
The need for pacemakers in 22 percent of patients in the latest CoreValve study may limit use, said Jason McGorman, an analyst at Bloomberg Industries in Princeton, New Jersey.
“If the hospital has more power over those decisions and cost is a problem, that could be a limiting issue,” McGorman said in a telephone interview. “The question everyone is still trying to figure out is how much the difference in pacemaker rates is going to be.”
The availability of another device, particularly one with different sizes, is essential for patients, said James Slater, director of the cardiac catheterization laboratory at NYU Langone Medical Center in New York. He said he’s had four patients die while waiting for the procedure.
“This is going to be an exciting time,” he said. “How we chose one versus another we haven’t quite figured out yet. In Europe it’s 50/50. Given the tremendous head start that Edwards had, it will be interesting to see if that settles down into the same ratio here.”
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